November 2017

11/28/2017

“Most people don’t want to be a burden on their family or children. One of the best things you can do to accomplish this goal, is to get your estate planning in order.”

What if your spouse is ill and you meet with an estate planning attorney to organize your family affairs? The attorney drafts a trust document and a will, and you and your spouse sign it. That’s that. You think everything is fine. However, what if your spouse suddenly dies, and you discover that the accounts aren’t set up to transfer the way you both wanted. Oh-oh. Could this happen to you?

For instance, a couple might be in their second marriage with no children in common. However, the wife has two children from her first marriage. She and her current husband had been together for 10 years, when she’s diagnosed with cancer.

When they see an attorney, they agreed that her assets would be divided one-third each to the husband and her two children. But most of her assets were in her company 401(k), and the beneficiary on the 401(k) was the husband. No one changed the 401(k) beneficiary designation to reflect the wife’s wishes. When she died, he tried to get the 401(k) to send one-third to each of her children, but it didn’t work. Her employer was legally required to distribute the account, according to the most recent beneficiary designation that they had.

In our example, the husband was a decent sort: he rolled the 401(k) into his own IRA, withdrew the two-thirds for the kids, paid the tax, and gave each of his second wife’s children their share. If they had properly updated the beneficiary form to add the children as direct beneficiaries of the 401(k), the tax cost would have been much less significant. It’s not an uncommon estate planning mistake.

If you have a will and trust, it’s important to note that these account titles and beneficiary designations supersede everything and anything that’s mentioned in your will and trust. If this isn’t set up right, it can mean some time-consuming and expensive maneuvering for your family.

If your accounts list only the husband or wife as the owner, the account titles need to be changed to reflect their trust as the owner. If the wife passes away before this is done, the accounts must go through probate.

Be sure there isn’t a dormant administrative nightmare waiting for your loved ones. Your retirement accounts, life insurance policies and annuities let you designate a beneficiary. Review these periodically and update them if necessary.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

11/27/2017

“Chuck Berry started playing in the early 1950s. It really took his death to get him to stop.”

When a celebrity passes away, it looks as though money left behind may be only the beginning of the estate’s wealth. This is because a star’s death can result in an influx of nostalgia buying. That just may be the case for the unofficial Father of Rock—he could leave his heirs billionaires, starting with his first studio album in 40 years.

Berry left about $15-$20 million behind, which he built up by working deep into old age. Chuck was still touring in his mid-80s. He never really retired. Therefore, with cash coming in, he never really spent down his liquid assets, as if he’d retired earlier.

His wife Themetta can claim at least half of the cash and a 50% share in the intellectual property. She’ll get much more, if a will is located. She was married to him for 68 years. As a result, there was no expensive divorce settlement in Berry’s past, meaning that his net worth could grow over the decades.

When self-made millionaires keep operating the “family business” until they die, their heirs want to know how to turn the enterprise into cash.

Chuck Berry wrote about 1,400 songs under his name.

These songs were recorded 6,600 times by various artists. Unlike many mid-century music pioneers, he also kept the publishing rights. Each time anyone records “Maybellene” or anything in his catalog, his standing arrangement demanded 9-10 cents per unit sold.

Licensing the actual tracks for advertising cost more.

Chuck was also working on his first album of new material since 1979. Finished or not, if it’s sold as a memorial, it’ll probably sell like David Bowie’s final release, which generated about $700,000 for the Starman’s estate in the first week.

The Berry catalog could be an annuity for his great-grandchildren’s grandchildren, sort of like a dynastic trust. His intellectual property could generate millions of dollars a year in licensing, merchandising and images. This is very similar to what drives Elvis’ or Jimi Hendrix’s estate.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

11/26/2017

“As with those who have endured other types of abuse, victims of financial elder abuse often feel they can't or shouldn't seek recourse.”

Perpetrators of financial exploitation are frequently family members, caregivers or other people who are known and trusted by the elderly. This makes many seniors who are financially exploited, even more reluctant to come forward. Perpetrators often depend on this or pressure victims to keep quiet.

As Yahoo Finance recently posted in “What to Do If You or Someone You Love Has Been Financially Exploited,” betrayal by a family member or another trusted person is especially hard on those who are financially abused. Seniors who've been financially exploited, may feel shame and guilt. Consequently, they do not feel entitled to help or support, let alone to feel victimized.

The widespread nature of financial exploitation shows that it can happen to almost anybody. More states are trying to find ways to legally address financial exploitation and to better address and deter this abuse, as the population ages and an increasing number of seniors are vulnerable.

Most states criminalize financial elder abuse.

This means that, in addition to laws already in effect to prosecute theft, there are added penalties, which can be filed in financial exploitation cases involving seniors or vulnerable adults, increasing the jail time for perpetrators.

Some states also now have statutes allowing older or vulnerable adults to sue specifically for elder financial exploitation. The states include Arizona, California, Florida, Oregon, Minnesota, Utah, Illinois and Washington.

A key feature of elder financial exploitation cases is that they allow victims to sue for multiple times the amount lost (usually two or three times the amount) and to recover attorneys' fees. This punishes perpetrators more and acts as a deterrent. This approach also encourages settlement of these cases. Awarding attorneys' fees is another incentive for seniors to secure legal representation.

Remember that the cost of financial abuse goes beyond the monetary loss. Victims and their families should access services, like counseling and case management, to help them heal after being financially abused.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

11/25/2017

“If you don’t want money you’ve worked hard for to pass down to your son’s or daughter’s ex, then consider a trust.”

The federal estate tax exemption in 2017 is about $5.5 million per person or $11 million for married couples. As a result, creating a trust to save on taxes for your family when you pass away doesn’t have the attraction that it once did.

On the other hand, now more folks are considering a trust. This is because they’re concerned about their adult child losing their inheritance due to a failed marriage. When you establish a trust as part of a will or revocable living trust, you can help protect your child’s inheritance in a divorce settlement.

It’s not uncommon for a child to get an inheritance and to combine it with assets he or she owns jointly with their spouse, like a bank account, car or house. Depending upon the state in where they reside, the inheritance may become marital property subject to division in the event of a divorce.

If the child’s inheritance stays in a trust account, the inherited wealth can be shielded from a divorce. Some people will leave their children’s inheritance in a trust after a first divorce, because of concerns that their hard-earned dollars might end up in the wrong pockets if he or she remarries. If a child marries again and it doesn’t work, the second ex-spouse will not get those trust assets.

It is true that creating a trust can be more complicated and more expensive than an outright distribution. However, many people are willing to pay the price to protect their child’s wealth. Consider the following alternatives regarding the parents’ decision to leave assets in trust for their children:

Children under age 18. If your child is under 18, you’re probably not considering his or her marriage or divorce. However, leaving assets in trust for a child may be a good plan. This is because a trustee will oversee the child’s assets and guide them in their decision-making with the funds. The trustee can also deny any financial requests. This is a valuable power, if a child is immature or easily influenced.

A newly married child. After the honeymoon, the journey can get bumpy as life becomes more stressful and complex. They may have to deal with issues such as a job lay-off, health issues, financial worries or the stress of rearing children. Rather than creating a trust soon after your child’s marriage, see how the marriage progresses over the next few years.

Marriage status. As mentioned above, after five years or more, you should determine your comfort level with your child’s relationship and how you feel about your son-or daughter-in-law. If you see acrimony or you just have a “gut feeling” about the union’s future, it may be smart to create a trust for your child’s inheritance.

You should look at estate plans as five-year plans, and review your will, trusts and other documents at least that often. You may not need to change them, but a periodic review can help you carefully evaluate relationships, finances and the emotional dynamics of your family.

Working with an estate planning lawyer, you can change the trust during your life, if family circumstances make it necessary.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

Fortunately, there are things you can do on this bumpy ride to make it easier on you and your parents. While it’s uncomfortable at first discussing the topic of death with your parents, it’s necessary and important.

Talk to them about estate planning and make sure that they have wills, durable healthcare and medical powers of attorney (POA) and health care directives. If your parents don’t have these documents, you should make an appointment with a qualified estate-planning attorney and get this completed today as soon as possible.

For example, what if your father has a debilitating stroke, doesn’t regain consciousness and needs 24/7 medical support indefinitely? Without a health care directive, the hospital will keep him alive, even in a vegetative state, until he passes naturally.

You’ll be unable to have him removed from life support, unless you can show the physician and hospital administrators his legally valid health care directive and his medical POA that details his wishes. Without these estate planning documents, you and your mother will have limited control on how he should be treated.

From a financial standpoint, it is important to remember that the hospitals will continue to bill you even when your father is on life support and technically brain dead. After 100 days of Medicare coverage, your mom will be fully responsible for these care and treatment expenses, if there’s no supplemental insurance.

Start the dialog with your parents and let them determine how they want to live and die. This will save you and your loved ones considerable stress, frustration and heartache in the future.

Once this is under control, work on your own estate planning. You should contact a knowledgeable and experienced estate-planning attorney with your questions.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

11/23/2017

“Funerals cost $6,000 and up, but planning can help you cut the big expenses.”

No one likes to talk about death, because it's considered taboo. But one subject even more taboo is money, contends gobankingrates.com. According to its article, “7 Money Secrets about Dying That No One Wants to Talk About,” if you don't talk or plan for dying, your death could cost your family a considerable amount of money. Read on to consider some valuable money secrets about death and how to be prepared.

Funerals Can Be Darn Expensive. Funerals homes charge about $6,000 for funeral services, and you'll pay an additional $2,000 for burial, $1,000 for a grave marker or $2,000 for a headstone. That adds up to $10,000 or more. Your family could also spend even more, if you don't put your final wishes in writing and discuss them with your family. The high cost of a funeral you didn’t want, could put your family in debt.

Look at Less Expensive Funeral Options. It’s hard to be sensible and objective when you're dealing with the emotional stress of a loved one's death. However, there are differences in prices. You can find this information online. Do some comparison shopping for your family and tell them which funeral home you prefer.

A Funeral Package Deal Isn’t Always a Great Deal. A funeral home might offer a package, but you may not want or need everything that's in it. Look at your options because funeral home pricing is dependent on the services provided. You can also buy the grave marker, headstone or casket online directly from wholesalers or distributors, which can cut costs.

A Traditional Funeral Isn’t the Only Option. Don’t feel pressured into having a traditional funeral for yourself or your loved one, especially if you can't afford it. The difference between a full traditional burial and a cremation can be $7,000, with the additional services required.

Prepaid Funeral Policies. Funeral homes and insurance companies offer prepaid funeral policies. This sounds like a good way to save your family money on your funeral costs, but you can spend more on premiums than the policy will pay at your time of death.

When you don't plan or you plan improperly, your family will pay the price. While you are at it, spend the money to have an experienced estate planning attorney draft a will so that it conforms to your state's laws.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

11/22/2017

“IRAs were established to help Americans save for their future, and retirement savers should take advantage of tax shelters such as IRAs to build and grow their nest eggs.”

A GOBankingRates.com survey found that one in three Americans has saved nothing for retirement. One great way to get started on retirement savings is by using an IRA: Individual Retirement Account.

According to madison.com’s article, “5 Things You Should Know about IRAs,” an IRA is a popular retirement savings vehicle. It lets individuals put money away for the long term, while providing them with tax advantages.

There are two main types of IRAs: traditional and Roth. Contributions made to a traditional IRA may be deductible or non-deductible, and all contributions made to a Roth are non-deductible. Both types of IRA accounts allow money to grow tax-deferred for many years. After age 59½, you can start taking qualified distributions. You’ll typically have to pay income tax on withdrawals from a traditional IRA, but withdrawals from a Roth are tax-free. In addition, here are a few more aspects of the IRA to consider.

Saving for retirement is a solo job, at least when you’re putting money in a tax-sheltered retirement account. An IRA can only have one owner.

IRAs have their own beneficiary designations, so who will inherit an IRA is based on who’s on the account's beneficiary forms—not what’s in a will, trust, or any other estate document. Therefore, when you open an IRA, name a beneficiary and remember to review and update the beneficiary designation form regularly, particularly when you have a life event, such as marriage or a child.

You have until Tax Day to make your IRA contribution for the last year. If you can't make a lump-sum contribution at the start of every year (giving your money added months to compound), you can spread your contributions over a 15-month period, from January until the following March to help you reach the annual contribution limit each year.

You typically must have your own taxable compensation to fund an IRA ( although a working spouse can fund a non-working spouse's IRA.) However, you don't have to use your own money to make your IRA contribution.

Consider rolling all of your 401(k)s into one IRA, which can hold all your old 401(k) money. You can also make direct contributions.

Always consult with a professional financial planner and certified public account before making any decisions that could affect your retirement and tax planning.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

11/21/2017

“Family limited partnerships (and similar entities), while useful in an estate planning strategy for high-net-worth clients, are often hotly contested by the IRS for their ability to transfer wealth within a family and minimize transfer taxes in the process.”

Family limited partnerships establish a business entity to hold assets that would otherwise be subject to transfer taxation. These can be an excellent vehicle for minimizing transfer taxes, says ThinkAdvisor in its recent article, “Estate Planning: The Family Limited Partnership Strategy.” It discusses the recent Purdue decision in U.S. Tax Court. That case held that when a family business entity is formed for legitimate non-tax reasons and managed appropriately, the transfer taxes can be minimized—despite the fact that minimizing these taxes was a component in creating the entity.

The Purdues had five children and several grandchildren and great-grandchildren. Their estate was worth about $28 million, much more than the current $5.49 million per person estate tax exemption amount. The couple funded a Purdue Family LLC with about $22 million in marketable securities and other assets and, at the same time, created a trust to benefit the Purdue’s descendants and spouses. The trust was funded with interests in the LLC in proportion to the gift tax annual exclusion each year. Each beneficiary could withdraw up to the gift tax annual exclusion amount or a per capita share of the assets transferred each year. The LLC’s operating agreement spelled out some non-tax reasons for creating the LLC, such as

Avoiding fractionalizing ownership;

Retaining assets within the extended family;

Protecting assets from future unknown creditors; and

Providing flexibility in managing the assets that wouldn’t be available in other entities.

When Mr. Purdue died, he created a bypass trust, a qualified terminable interest property (QTIP) trust and a GST-exempt trust—each of which owned a portion of the LLC. Mrs. Purdue and her husband had retained the right to income and distributions from the LLC assets, although the decedent had approximately $3.25 million outside of the LLC and trusts. After the decedent’s death, the IRS attempted to collect more than $4 million in estate taxes and challenged the LLC structure. Trust beneficiaries and the QTIP trust loaned the estate funds to pay the estate tax. The estate attempted to deduct interest paid on the loan, but the IRS challenged this.

Tax Code § 2036 stipulates that property transferred to a trust, in which a decedent holds an ownership interest, will be included in his or her gross estate, except when that property is transferred for adequate consideration. The estate was also required to show that there were valid non-tax reasons for creating the family LLC. The IRS said the LLC was created primarily to transfer wealth to the next generation and avoid taxes. But the Tax Court disagreed. It found the seven non-tax reasons for forming the LLC to be compelling: (1) relieving the decedent of having to manage the investments; (2) consolidating investments with a single advisor to reduce volatility under a written investment plan; (3) educating the children to jointly manage an investment company; (4) avoiding repetitive asset transfers among multiple generations; (5) creating common ownership of assets for efficient management and meeting minimum investment requirements; (6) providing voting and dispute resolution rules and transfer restrictions; and (7) providing the children with a minimum annual cash flow.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

11/20/2017

“One of the legendary fortunes just moved one generation farther from the source. The next few years will determine whether dynastic planning has hit its ultimate limit or will truly run forever.”

John D. Rockefeller was the poster child for long-term estate planning 80 years ago. David Rockefeller, the last grandchild of the family patriarch and a full participant in the trust, has now died.

A recent Trust Advisor article asks “Dynastic Gamesmanship: Did David Rockefeller’s Crafty Trust Work Leave the IRS Holding the Bag?” It seems that when John D. put $1.4 billion into his first trust, he funded lavish lifestyles in perpetuity. Fortunately for future Rockefellers, family advisors have watched over the trust and kept it current. The family trustees did extremely well for David and his siblings, while passing completely outside the estate tax system. They enjoyed billions in tax-free income, while the principal continued to compound.

With Rockefeller advisors working hard to conserve the assets, the estates of John D.’s grandkids passed to their descendants with little in the way of taxation. John D.’s trusts passed the bulk of his money to his grandchildren and the great-grandchildren who were around when he set up the plan in 1934. Implementing trusts to bypass the estate tax at the time, arguably tripled the amount of money that went to the heirs, in addition to the income it provided. This saved 70% of fortunes this size from the IRS.

However, with David’s death, the estate plan needs to change. In the 1930’s, the trust code prevented the creation of beneficiaries who weren’t even born yet. This means that original layer of the family’s wealth will need to wind down when the last heir named in the documents dies. That will be John D.’s great-niece Abby Milton O’Neill—his oldest living great-grandchild, who now keeps the trust from terminating. Now near 90, the IRS is still waiting to tap assets. If there’s any principal left, the heirs will pay a tax bill.

By the early 1980’s, there were multiple layers of trusts supporting five generations of heirs—the youngest beneficiaries were only able to claim a 3% genetic bond to John D. This fragmented system kept everyone comfortable, but major charitable donations, and big-ticket purchases became a drag. Therefore, the advisors mortgaged Rockefeller Center and sold some property to raise cash on the deeply illiquid real estate. That cash went back into investments, eventually turning into a profit center. This approach keeps the wealth flowing to an ever-increasing list of descendants, while leaving the assets intact. At some point, their income needs are going to need to cut back or face draining the principal.

John D.’s money is rolling from generation to generation, without creating a taxable event. With the trust regulations now on the books, depending on the state, a trust created now for David’s own grandchildren and beyond may never need to end.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.

11/06/2017

Although he passed away some years ago, Michael Jackson just keeps on going. He’s also likely to continue to be a major money-making entity long into the future.

The estate recently severed ties to Jackson’s publicist and former management team, after a multi-year courtroom battle. The losers said they stood by the star at a really low point in his life. In return, they claimed, he promised them 15% of his business. Trust Advisor’s April 2017 article, “Michael Jackson Estate Reveals Mr. Hyde Side: Dead Star Now Fighting His Friends,” explained that since the estate wanted all of the cash, whatever Michael really wanted is of little consequence without legal documentation. Since a judge has dismissed the claim, the estate can continue consolidating its hold over every aspect of the Michael Jackson brand. All the old relationships that he once had with partners and advisors are gone.

The executors have been extremely busy over the last eight years, erasing any existing relationships for higher absolute returns on the assets. Michael’s attorney—now in charge of his estate—is looking at the way the assets are being transferred to his kids. Michael’s mom gets 40% of the income while she’s alive, and his kids each get a third of what’s left in three installments each when each one of them turns 30. After that, it’s all about maximizing the amount the executors will have to turn over in the future.

And nothing is out of reach. That’s how the estate justified liquidating the Beatles song catalog which Michael loved—despite that songbook making $10 million a year. The estate also sold the global distribution rights to Michael’s own publishing in a deal that soon expires.

When Michael was alive, he was a star. He was untouchable and burned through cash like it grew on trees. He made poor decisions and couldn’t hire a top manager to turn around his cash flow. It was his charm and goodwill that got his old lawyer back to run the estate. It’s now a big business that can chase bigger deals and generate more cash.

Now that the debts are paid, the cash keeps rolling into the estate. Computer animation is supporting a bevy of new endorsements and “appearances” for big fees. The IRS is demanding taxes on image and publicity rights worth up to $140 million, but there are still 10 years before Michael’s kids get any inheritance. Right now, the estate is making sure that the kids are very comfortable while the managers keep the assets working.

One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.